Credit Cards Term – Balance Transfer

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to a cause is to first invest in yourself, or in knowledge. One of the
ways to build up your knowledge capital is to read. So for this week,
I'll be talking about short terms or topics on Credit, specifically credit card!

Click below to get this rewards card:Balance transfer - The process of moving an unpaid credit card debt from one issuer to another. Card issuers sometimes offer teaser rates to encourage balance transfers coming in and balance-transfer fees to discourage them from going out.

This process is actively encouraged by almost all credit card issuers as a means to attract new customers. Such an arrangement is attractive to the consumer because the new bank or credit card issuer will offer incentives such as a low interest or interest-free period, loyalty points or some such other device or combination of incentives. It is also attractive to the credit card company which uses this process to gain that new customer, and of course detrimental to the prior credit card company.

Transaction fee - A transaction fee is a commission earned by the
credit card company earning one’s business and is a direct transfer of
money from the user to the credit card company. This varies from
(typically) 1-5% of transferred debt – sometimes with a maximum capped
amount, but otherwise an uncapped percentage.

Decisions on whether or not a card holder decides to transfer one’s credit card balance depends on a combination of three things:

Normal Rate - This is the normal interest rate on a credit card. The lower this rate, the better for the consumer (less cost of capital) and the worse for the credit card company (less profit). The transferred balance will be subject to same rate as the card’s purchase (merchandise) rate.

Occasionally the same terms will apply as to purchases that may be interest free until the payment date for the statement on which the transfer appears. More often such transferred balances move immediately to the full purchase rate. Credit card balance transfers involving transfer of funds from a high APR credit card or a store card (which often has high APR) to a low-or zero-APR credit card will result in a reduction in monthly outflows for the card holder.

Teaser Rate - A teaser rate is an especially low rate that a credit card company offers to new customers to entice them to transfer their balance. It is a lure for catching new customers. With an extra low initial rate, transferring customers have lower than normal interest which ultimately means lower initial monthly outflows of money to the credit card company. The 0% rate is the most common when a new credit card account is opened.

This teaser rate is temporary and the duration of teaser rates vary from (typically) 6 to 15 months, after which the remaining transferred balance is subject to purchase rate. Failure to ensure the account is current (payments made on time) may result in the withdrawal of the offer rate. Customers should pay attention to the length of time of the opening offer, since once it is over there is a sudden increase in rates. This increase is the credit card company’s method of making extra profits to make up for the losses of charging the lower introductory rate. Of course, this can be countered by switching to yet another credit card company.

Fixed life of Loan Rate offer - A low rate that is fixed until the transferred balance is paid in full. This type of offer is usually guaranteed only as long as the account is current. While this allows the borrower to save interest on their existing debts without the need to initiate further balance transfers once a teaser rate offer expires, the fixed offer rate is higher than the limited duration teaser rate offer.

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Vernon Joseph Go is a Corporate Mad Hatter passionate about learning, technology, simplified finance as well as Inclusive Businesses through Social Entre/Intrapreneurship Development by bridging purpose and profit.